bfinance introduces new categories for alternative investing

With a growing demand among investors for alternative asset classes and customised partnership-style strategies, bfinance has proposed four new categories of alternative multi-manager strategy.

All these categories can be presented on a spectrum from those that are more ‘product-focused’ to the more ‘solution-focused’ offerings and were designed in response to investors’ needs in volatile times which included searching for alternative assets that offer diversification, downside protection, upside capture and low correlation to traditional assets.

The new “allocator solutions” will include single asset class, diversified, customised and internal/umbrella fund of funds.

The first category will cater mostly to asset class specialists in private markets as these vehicles typically provided access to external managers with especially strong appeal in asset classes where even well-resourced investors would typically find it difficult to develop appropriately diversified single-manager portfolios, such as Venture Capital.

The second one will be diversified across multiple asset classes and sectors, with strategic and tactical asset allocation/risk budgeting determining the fund’s exposures.

The customised fund of funds will be the most solution-focused of all four categories, with a focus on “diversified strategies offering a high degree of partnership with a specific investor”.

According to bfinance, this use of an open architecture approach would give the investor access to a broad variety of underlying strategies with strong support on asset allocation, tactical repositioning, cashflow management and more.

The last one, the internal/umbrella fund of funds, would represent a way of packaging multiple in-house strategies in a single product, the firm said.

Such funds may also feature co-investments and secondaries and tend to be less diversified than fund of funds that use external managers.

However, the firm said that each of the multi-manager strategies comes with their own set of benefits and challenges.

On the positive note, such strategies are often less resource-intensive for the investor, allowing for diversification across multiple drivers of return and they can also potentially offer higher liquidity in typically illiquid sectors, depending on the strategy.

However, the downside include conflicts of interest with more layers of separation between clients and assets, increased complexity, potentially high fees (depending on the approach), and low visibility on many parts of the manager universe.